CBDC Is A “Better” Alternative to Stablecoins, Which Are Unlikely to be Regulated Money, says BoE Governor
Andrew Bailey, the Governor of Bank of England, yet again shared his criticism of stablecoins as he said that he did not believe that stablecoins are likely to evolve into safe, regulated money, which means central bank digital currencies (CBDCs) will more likely be the future for electronic payments.
“I think we have two choices broadly,” Bailey told lawmakers in the upper house of Britain’s parliament as part of an inquiry into the future of digital payments.
“Is it going to evolve to some world of (asset-) backed stablecoins which has money-like features which could be regulated? I must say … I am sceptical about that. Or … is the better contribution, particularly to financial stability, to say the better alternative to that may be a central bank currency of digital form?”
Commenting on stablecoins, Bailey said out of the $2.5 trillion crypto market cap, which is around the level of the FTSE 100, “95% of it is unbanked crypto-assets,” and the other 5% are stablecoins, “some of which are more stable than others.”
He also warned that crypto-assets do have “all the potential to be a threat to financial stability, which is why we think we do need to take action.”
This month, the BoE and Britain’s Treasury said they would hold formal consultations next year on whether to move forward with a CBDC, which, if approved, would be introduced in the second half of the decade.
On Tuesday, Bailey said he would not expect the BoE to offer digital bank accounts directly to savers.
“We do not see this as the Bank of England moving into the retail bank account business through a central bank digital currency,” he said while speaking to the Lord’s Economic Affairs Committee.
The BoE would instead provide the means of settlements to a regulated platform on which banks and even alternative digital wallets holders would operate. The central bank, Bailey said, would need power over these firms on the platform to protect privacy.
According to him, work on a CBDC was intended to solve cash and retail transactions problems and not as a tool to implement unconventional monetary policy such as a negative interest rate.
Bailey further warned that allowing the private sector to manage the shift toward digital currency could result in the bank regulating big tech firms. “The question we’re going to face is… would we try to regulate” private tech firms creating digital money, he said.